WHERE ARE U.S. WINE CONSUMERS GOING?

AIM HIGHDanny Brager - SVP Beverage Alcohol Practice

Adelaide, Australia – July 25, 2016

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U.S. WORLD’S LARGEST WINE CONSUMING MARKET BUT MORE POTENTIAL

Sources:* Nielsen, Beverage Information Group; bw166 ,IWSR

#1 #42 per capita**

74%<France54% < Australia

9L cases Wine

Value and Volume and Growing

IMPORTS*• ~1/4 of Volume• ~1/3 of Value

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1% share of U.S. market = 3.73MM 9L cases

=20% increase to current AU exports to U.S.

Source for Wine Industry Volume - 2015 Source for AU volume – Wine Australia

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ABOUT WINE IN THE U.S.

CONSUMER

120MM (52%) several x per year

85MM (37%) monthly

46MM (20%) weekly

28MM (12%) several x per week

At Least..

SUPPLIER/ BRANDS

Source: Nielsen off premise (2015/16)

35,673wine items

11,771table wine brands

Source: Nielsen (Harris) - Average responses consumer surveys conducted in 2015

DISTRIBUTOR/ WHOLESALER

Top 10 = almost 75%

of all wholesalers

Source: Industry Estimates (2016)

RETAILER

545,000359K on187K off

Source: Nielsen TDLinx (Dec 2015)

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U.S. Wine market• Complex (50 Unique states – not the United States), and

largely sold through 3-tier distribution system • Big, expanding, premiumizing• Consistent growth; still low per capita• Very competitive – fragmented; long tail growing • Growing alternatives for where to sell, and buy

Demographic highlights• Millennials - of roughly equal size to Boomers; driving growth• Ageing - 10MM more 60+ in next 5 years; by 2020, 1 in 5 will be 65+• Multicultural – almost 40% of population; higher among younger ages

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0.3

2.10.9

3.1

1.8

5.3

3.6

6.3

Overall ConsumerPackaged Goods

Wine Beer (inclFMB/Cider)

Spirits

Measured Off Premise Outlets – Latest 52 weeks Growth Rates

Volume Value

WINE GROWING OFF PREMISE – PRICE/MIX RISING

Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-28-2016; Overall CPG thru 6-7-2016Beer includes Flavored Malt Beverages and CidersGrowth ranking compared to 125 Nielsen measured consumer packaged goods categories

Table +1.9 +4.9Sparkling +9.0 +11.3

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INCREASING APPETITE FOR WINE IS EXPANDING RETAIL AVAILABILITY TO THE CONSUMER

163,820 186,765

312,422 359,142

2010 2015

Total U.S. - Number of Wine Selling Outlets

Off Premise On Premise

Nielsen TDLinx (December of each year)

476,252545,907

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1. Online Retailing

ONLINE is GROWING

AU Share/Growth vs YAG• 5.6%: Volume (+6.0%)• 4.7% Value (+3.2%)AU Average Price - $26vs total Wine.com - $31

1-2% of volume; 5% of value (off-premise)2. Direct to Consumer

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Sales Share Price Tier

% Chg VolumeValue Volume

36.5% 58.6% <$8 -2.8%27.3% 23.1% $8-$11 +4.6%36.1% 18.3% $11+ +12.3%

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SIGNIFICANT VOLUME STILL <$10, BUT GROWTH FROM $10+; AVG 750 ML BOTTLE NOW $10

Sales Share Glass Price Segment(Eq 750 ml)

Value % Change

Volume % Change

Average Price/750 mlValue Volume

100% 100% Ttl Table Wine +4.5% +1.4% $7.916.4 15.6 <$4.00 -3.4 -4.3 $3.2530.1 43.0 $4-$7.99 -2.5 -2.3 $5.5327.3 23.1 $8-$10.99 +5.1 +4.6 $9.3818.7 11.8 $11-$14.99 +12.2 +12.0 $12.528.5 4.0 $15-$19.99 +13.9 +14.2 $16.994.0 1.5 $20-$24.99 +10.6 +10.4 $21.554.8 1.0 $25+ +10.1 +10.9 $38.46

• Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016

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0%10%20%30%40%50%60%70%80%90%

100%

<$4.00 $4-$7.99 $8-$10.99 $11-$14.99$15-$19.99$20-$24.99 $25+

Top 25 Brands Share of Table Wine Price Tiers (Glass only)

THERE’S NOT MUCH ROOM – OR MARGIN - TO PLAY IN PRICE TIERS LESS THAN $8

• Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016); Volume basis; price per eq 750 ml

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ROSE’ (PREMIUM END) ABSOLUTELY ON FIRE Just a little over 1% of Table Wine, but now very fast growing (>+40%)

Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016 (Bubble = Annual $ Size)

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AU NEAR THE TOP – BUT LAGGING IMPORT GROWTHSales Share Table Wine

Country of Origin Value % Change

Volume % Change

Avg Price/ 750 mlValue Volume

26.4% 25.0% Total Imported +3.4% +0.4% $7.378.2 6.3 - Italy +6.6 +4.4 $9.005.4 7.8 - Australia -3.2 -3.1 $4.863.1 3.0 - Argentina -3.7 -5.9 $7.052.4 1.3 - France +13.7 +10.7 $12.422.1 1.7 - New Zealand +16.6 +15.1 $11.282.1 2.5 - Chile -2.8 -3.2 $5.831.2 1.3 - Spain +2.3 +0.3 $6.560.7 0.6 - Germany -3.4 -4.5 $8.660.2 0.2 - S. Africa +4.6 +1.0 $9.400.2 0.2 - Portugal +12.0 +11.2 $7.14

Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016

+$.19

+$.34

+$.13

+$.33

+$.10

+$.16

+$.15

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19Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016

7.8%

5.4%

3.2%2.1%

5.4%4.5%

2.6%1.8%

0%

2%

4%

6%

8%

10%

Australia (Total) AU "Brands" AU #1 Brand AU "Brands"excl #1 Brand

Australia Table Wine Share – Off Premise

Volume Value

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-6%-4%-2%0%2%4%6%8%

10%12%14%16%18%20%

Total AU -Year Ago

Total AU -Current 12 mos

AU >$10 -Year Ago

AU >$10 -Current 12 mos

Australian Table Wine Sales Percent Change– Nielsen Off PremiseValue Volume

AUSTRALIAN WINE TRENDS IMPROVING OVERALL1) Declines moderating; 2) value/volume trends better aligned; 3)>$10 USD growing

Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016; U.S. Retail Pricing

TL AU EXPORTS TO U.S.Volume: -4%; Value +8%

$10+ (AUD FOB/litre)Volume: 1.3% share; +22.1%Value: 7.9% share; +16.1%

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0%1%2%3%4%5%6%7%8%9%

10%11%12%13%14%

<$4.00 $4-$7.99 $8-$10.99 $11-$14.99$15-$19.99$20-$24.99 $25+

Australian Table Wine Share - by Price TierTable Wine Bottle only (100%) – Volume basis – Off Premise

EFFORTS SHOULD BE FOCUSED IN DEVELOPING THE MORE PREMIUM TIERS (~$7+ AUD FOB PER LITRE)

Source: Nielsen Total U.S. All Outlets (xAOC + Liquor Plus + Conv + Military); 52 w/e 6-18-2016

a 1 point share increase in each of these segments = 530,000 incremental (and profitable) 9L cases

+4% increase over current total AU off premise volume

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19 CRIMES • #7 Australian brand off premise• 17th largest increase of all 5,550 brands that increased sales in latest year

• Authentic, and engaging story

• Appealing label

• Well priced

• Hot varietals

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NOT A DESIRED IMAGE…

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50% 55% 60% 65% 70% 75% 80% 85% 90% 95%

FranceItaly

GermanySpain

CaliforniaSouth Africa

ArgentinaNew Zealand

PortugalAustriaGreece

ChileAustralia

Percent responding Excellent or Very Good; Ranked by Difference between Quality and Value

Quality Value

AMONG HIGH FREQUENCY WINE DRINKERS, AUSTRALIA QUALITY VS VALUE IS ALIGNED

Source: WMC High Frequency Wine Drinker Survey (November 2014)

1 pt difference

20 pt difference

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25Source: Nielsen CGA On Premise channels – 52 w/e 5-21-2016

-0.3%-2.0% -2.7%

Table Wine Imported Table Australia Table

On Premise View; % Change vs Year Ago (Value)~20% of volume~40% of valueSource: BIG, bw166

31.8% Share 2.2% Share

14% of Wine consumers say they drink AU wines on premise

(past 3 months*)

*Nielsen CGA On Premise Consumer Survey, March-April 2016; Samples size of wine consumers– 2013 (preferred country – 710)

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…always connected; techno savvy…multi taskers; seek instant gratification…social, social, social…love to “capture” life, and “share” it…conversational (but talk with, not to)…experimental, adventurous…environmental and social minded…want to be informed…embrace “personalization”…values authenticity (be genuine & real)…loves to travel…eats out more…highly multi-cultural (U.S.)

MILLENNIAL GENERATION

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46%45%

0% 10% 20% 30% 40% 50% 60% 70% 80%

GreeceAustria

South AfricaPortugal

GermanyNew Zealand

ArgentinaChileSpain

AustraliaFrance

Italy

Total 21+21 to 38

AMONG HF WINE DRINKERS, AUSTRALIA DOESN’T GET THE SAME MILLENNIAL “POP” AS DO OTHER IMPORTSHave you purchased Wine from this region in the past 3 months? (ranked by 21+ purchase)

Source: WMC High Frequency (at least several times a week)Wine Drinker Survey (November 2015)

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PROMOTE YOUR QUALITY/VALUE & DIVERSITY, AND…1. Decide what you want to be – big, small, niche? Impacts how you

go to market, with which partners, and with what product(s)2. Keep it ‘simple’ – consumers, especially Millennials, care most

about taste, price, authenticity, what their friends say – too much complexity and ‘wine speak’ is confusing, or meaningless to them

3. Tell your BRAND story – interestingly, visually, authentically4. Have patience and funding -- complexity of 3 tier ‘route to market’ and

regulations/restrictions makes going to market more difficult, time consuming5. Invest in focused and consistent time in U.S.– learn and educate (focus on trade –

importer sales teams, distributors, retail buyers OVER consumer)6. Host “visits” to Australia of key U.S. gatekeepers7. Get to know the key trade and consumer media, and bloggers – key influencers8. Make your wines available online – no ‘walls”, and where you can ‘tell your story’ 9. Have a focused “SKU” strategy – just because you can make it, doesn’t mean it will

sell; you’ll need to be able to generate velocity (turns) to stay. Answer the key question to get your brand on the shelf or wine list – what makes you different?

10. Stay attuned to consumer trends – prepare to be a ‘fast follower’

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• Reds – Blends, as well as Cab Sauv, P Noir• Whites - Sauvignon Blanc; Pinot Gris/Grigio• Rose’• Sparkling wine that delivers on quality/value (e.g Prosecco)• 750 ML, but also alternative packaging - 3L Box, Tetra, Cans, Single serve• Wine on Tap• Online retailing/purchasing – in various forms• Wine cocktails on premise• Sangria – and sangria cocktails• Millennials the growth engine; gap closing on Boomers as top consuming generation• Imports with a bright future

• AIM HIGH - Table Wine price points $10+ ($10-$20 with highest volumes)

BEING IN TUNE WITH THE U.S. CONSUMERWhat’s trending in U.S. Wine today

Danny BragerSenior Vice President, Nielsen Beverage Alcohol Practicedanny.brager@nielsen.com